Insurance Coverage Update: COVID-19 Business Interruption Cases

Businesses and organizations in all sectors have been watching developments in the hundreds of lawsuits seeking insurance recovery for business interruption losses due to COVID-19. A handful of cases have been decided. More than 1000 cases remain pending.

The decided cases have largely been resolved early based on the adequacy of the complaint. Although new decisions are issued weekly, all but one of the cases decided so far has favored the insurer. Those courts have ruled either that the insured did not plead that the virus caused physical loss or damage or that the virus was present at the premises. Courts presented with policies containing a virus exclusion (which many policies do not have) have found that the exclusion bars coverage.

In the first decision in favor of the insured, a federal district court in Missouri denied the insurer’s motion to dismiss a complaint seeking damages for business interruption losses due to COVID-19. In Studio 417 v. The Cincinnati Ins. Co., a group of restaurants and beauty salons in Missouri and Kansas filed a putative class action complaint seeking to recover insurance proceeds for losses suffered as a result of COVID-19 and governmental closure orders. The plaintiffs claim they are entitled to recover under the policies’ coverages for business interruption, civil authority, ingress/egress, and the dependent property and sue and labor provisions.

The court found that, contrary to the insurer’s argument, the plaintiffs adequately alleged direct physical loss or damage to property, a prerequisite to coverage under the policies at issue. The court noted that the terms physical “loss” or “damage” are undefined, but that the disjunctive – “or” – requires that “loss” and “damage” have different meanings. The court rejected the insurer’s argument that “loss” requires physical transformation of the property. Instead, the court concluded that the requirement of “loss” is satisfied if the insured is deprived of use of the property. The court further found that the allegation that the virus was likely present on the property and the impact of its presence were sufficient at the pleading stage to satisfy the requirement of physical “loss.” Studio 417 v. The Cincinnati Ins. Co., Case No. 20-cv-03127-SRB (W.D. MO Aug. 12, 2020).

The Studio 417 court recognized that the allegation of the likely presence of the virus differentiates this case from the decision of a Michigan state court judge in Gavrilides Mgmt. Co., LLC v. Michigan Ins. Co., Case No. 20-258-CB (Ingham County, Mich. July 1, 2020). There, unlike in Studio 417, the plaintiff admitted that Covid-19 had never been present at the location. Similarly, in a decision granting summary judgment for the insurer, the court noted that “plaintiffs offer no evidence that COVID-19 was actually present on their insured properties at the time they were forced to close.” Roses 1, LLC. v. Erie Ins. Exch., Civil Case No. 2020 CA 002424 B (D.C. Sup Ct. Aug. 6, 2020).

In these early days of COVI-19 business interruption litigation, it is too soon to identify a majority view. The decisions thus far indicate that outcomes will vary from state to state based on the particular facts of the case as well as the particular policy language at issue. Whether presence of the virus at the premises is alleged and whether the policy contains a virus exclusion will likely continue to factor in the outcomes.

Honigman’s Insurance Recovery and Advisory Practice Group advises and advocates for policyholders in the full range of commercial insurance coverage disputes and litigation. For additional information, please contact Paula Litt plitt@honigman.com or Sara Brundage sbrundage@honigman.com.